Investors’ Rights Agreements – Three Basic Rights
An Investors’ Rights Agreement is a complex legal document outlining the rights and responsibilities of investors when purchasing a company’s stock or other form of securities. Investors’ Rights Agreements can cover several different rights awarded to the investors, depending on the agreement between the two parties. Almost always although the agreement will cover three basic investors’ rights: Registration rights, Information Rights, and Rights of First Refusal.
Registration Rights are contractual rights of holders of securities to have the transfer of those securities registered with the SEC under the Securities Act of 1933. In other words, Registration Rights entitle investors to force a professional to register shares of common stock issuable upon conversion of preferred stock with the Securities and Exchange Commission. A venture capitalist shareholder especially wants the ability to register his shares because registration provides it with the ability to freely sell the shares without complying with the restrictions of Rule 144.
In any solid Investors’ Rights Agreement, the investors will also secure a promise through company that they’ll maintain “true books and records of account” in the system of accounting consistent with accepted accounting systems. Corporation also must covenant if the end of each fiscal year it will furnish each stockholder an account balance sheet belonging to the company, revealing the financials of supplier such as gross revenue, losses, profit, and net income. The company will also provide, in advance, an annual budget for every year together financial report after each fiscal three months.
Finally, the investors will almost always want to have a right of first refusal in the Agreement. This means that each major investor shall have the legal right to purchase a pro rata share of any new offering of equity securities from the company. Which means that the company must provide ample notice to the shareholders from the equity offering, and permit each shareholder a specific quantity of time exercise any right. Generally, 120 days is given. If after 120 days the shareholder does not exercise her own right, versus the company shall have a choice to sell the stock to other parties. The Agreement should also address whether or even otherwise the shareholders have the to transfer these rights of first refusal.
There likewise special rights usually awarded to large venture capitalist investors, including right to elect at least one of the company’s directors and also the right to sign up in generally of any shares served by the founders of the particular (a so-called “co founders agreement india template online-sale” right). Yet generally speaking, keep in mind rights embodied in an Investors’ Rights Agreement always be right to join up to one’s stock with the SEC, the right to receive information about the company on the consistent basis, and property to purchase stock any kind of new issuance.
